United Technologies Corporation agreed Wednesday to pay the SEC $13.9 million to settle FCPA offenses related to its Otis Elevator and Pratt & Whitney aircraft engine businesses in China, Azerbaijan, and six other countries.
Here are some findings from the SEC order:
1. The Otis Elevator unit in Azerbaijan hired agents from Russia and Estonia without doing any due diligence, violating United Technologies’ corporate policies.
“Despite a corporate policy that required it, no due diligence was performed on the intermediaries, which were small entities registered in either Russia or Estonia. None of them had local experience in Azerbaijan or reliable experience in either import/export or the elevator industry. In fact, one of the intermediaries was not a registered entity until February 2014, well after participating in Otis’s transactions with Liftremont in 2013.”
2. Otis allowed purchasing municipality officials access to an Otis Russia signature stamp to falsify documents.
“The scheme also involved allowing Liftremont [a Baku municipal entity] officials to use Otis Russia signature stamps to falsify documents. For example, the Otis Russia Manager emailed the Liftremont Senior Official and his assistant an electronic image of the stamp of an Otis Russia branch and the signature of the head of the company. In the email, the Manager wrote that the assistant could prepare a certificate and apply the official Otis stamp and signature.”
3. An Azerbaijani official used proceeds to buy a $1.7 million apartment in Istanbul.
“The media reports, which were based on statements made by a relative of the Liftremont Senior Official, also alleged that the Senior Official used the $1.7 million from Otis to purchase four luxury apartments in an elite Istanbul residential complex.”
4. Cash advances in China were earmarked as office renovations.
“In February 2009, the agent requested a commission advance of $2 million purportedly for an office expansion. The agent provided no documentation to support its need for the advance. Moreover, there was little basis to believe that the agent, who mainly arranged introductions and meetings, actually intended a $2 million office expansion”
5. The agent in China was paid $55 million for commission fees based on the value of the contracts.
“Nonetheless, beginning in May 2006, IAE [a joint venture that included Pratt & Whitney] entered into a sales representative agreement and series of amendments with the agent providing a success fee commission of between 1.75 and 4% of sales to Chinese airlines. In October 2009, Pratt engaged the same Chinese sales agent. From 2009 to 2013, IAE paid approximately $55 million in commissions to the agent.”
6. At a Pratt & Whitney sponsored golf tournament, Chinese airline officials were given iPads and luggage.
“At the event, the GM/VP and the President learned that the sales agent gave the Chinese airline executives expensive gifts, such as iPads and luggage. After the event, neither informed Legal or BPO of the gifts. Pratt paid $30,000 to the resort that hosted the golf event.”
United Technologies settled with the SEC without admitting or denying the findings. View the SEC administrative order here (pdf).
Harry Cassin is the managing editor of the FCPA Blog.
Thanks for the post, Harry. I particularly like the format. Elaborating on point 5 above, the SEC's issue was not with the payment of commissions, or the commission rate, per se. Rather, they took issue with the payment of commissions in the face of obvious red flags about the third party – particularly including its lack of prior aviation experience, its request for the significant cash advance without substantiation or any reason to believe the advance would be spent appropriately (addressed in item 4 above), and the fact that the third party provided UTC with what was obviously confidential, non-public information it should not have had. Again, thanks!
Harry this is great and inclusive. It answers critical investigative questions. What law was violated. Who violated the law. How the violations occurred. And what sanctions were imposed. Inherent in the violations were the control and due diligence loopholes that can be strenghtened to prevent future occurrences.
Thanks for helping compliance professionals.
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